The association between stock market and exchange rates for advanced and emerging markets – A case study of the Swiss and Polish economies
AbstractThis paper investigates the differences in structures of causal relationships between stock and currency markets for advanced and emerging economies on the example of Switzerland and Poland. The bootstrap–based linear causality analysis as well as nonlinear causality tests were conducted for both considered countries. Results of linear causality analysis indicated that for Swiss economy the portfolio approach seems to be the right pattern while for Poland the traditional and portfolio approaches were found to be appropriate. On the other hand the results of nonlinear analysis provided solid basis to claim that for Switzerland both approaches are acceptable while for Poland nonlinear causality was not reported in any direction. Results of nonlinear causality test were generally unchanged after GARCH(1,1) filtration. The existence of strong causal links from stock to currency markets of both economies seems to have a practical application for investors helping to hedge their portfolios against currency shocks.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 52238.
Date of creation: 2012
Date of revision:
Publication status: Published in Betriebswirtschaftliche Forschung und Praxis 2.64(2012): pp. 2012
stock markets; exchange rates; Granger causality; bootstrap techniques; GARCH models;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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